The Hydrogen Hype Is Real, But Is It Justified?

Amid all the hype hydrogen is getting lately as an energy source, the reality is that this fuel faces significant challenges in scaling up in the global energy system.  That’s the lead conclusion of the Innovation Insights Briefing prepared by the London-based World Energy Council (WEC) in collaboration with the Electric Power Research Institute (EPRI) and PwC.  

Hydrogen, especially green hydrogen made of water electrolysis using electricity from solar or wind, has been gaining momentum in recent years. 

Hydrogen now features in nearly every strategy of Big Oil and can be seen in many government plans for industry decarbonization. Hydrogen is expected to play a prominent role in lowering the carbon emissions from energy-intensive industries.   

Currently, countries view hydrogen’s role in the energy transition in very different ways. According to the WEC’s report, existing hydrogen demand scenarios show estimates for future use of the fuel vary between 6 and 25 percent of final worldwide energy consumption by 2050, or between 150 and 600 megatons by 2050, depending on how hydrogen will compete with other clean solutions such as battery storage.  

Despite the fact that many countries are looking at how to develop a ‘hydrogen economy’—by becoming suppliers or charting pathways for hydrogen use in domestic industries—scaling up hydrogen “faces significant challenges,” the report found. 

First and foremost, it’s the cost.  Related: China Doubles Down On Coal Despite Global Push To Go Green “Low-carbon hydrogen is currently not cost-competitive with other energy supplies in most applications and locations and is likely to remain so without significant support to bridge the price gap - which raises the question of who should fund this support,” the WEC notes. 

But countries are sending encouraging signals that they are currently willing to help low-carbon hydrogen scale up with direct investments in projects, the report says.

The question is how much and how long of taxpayer support it could take to make low-carbon hydrogen competitive enough to be a viable cost-efficient solution to industry decarbonization. 

Then, the WEC report says, the hydrogen economy is at such an early stage that it faces the “chicken and egg problem” between supply and demand, both lacking secure volumes from the other to help establish the value chain.

Next, the “color debate” about hydrogen, with colors used to denote how hydrogen is being produced, is stifling innovation, according to the report. This “color differentiation” could unnecessarily exclude a viable cost-efficient technology just because one type of hydrogen is currently color-coded as ‘blue’, for example. Blue hydrogen refers to hydrogen made from fossil fuels with carbon capture. 

“The color debate needs clarity as it could risk prematurely excluding some technological routes that could be more cost and carbon-effective. There is an emerging sense that the discussion should perhaps think about moving beyond color and instead focus on carbon equivalence,” the authors of the report wrote. 

“This decade is crucial to develop hydrogen projects along with the infrastructure to produce, transport, import, distribute and use hydrogen at large scale. If we do this successfully over the next few years, it can pave the way for hydrogen demand to grow exponentially beyond 2030,” Jeroen van Hoof, Global Energy, Utilities and Resources Leader, PwC Netherlands, said, commenting on the report.  Related: The Best 2 Stocks To Hold As Oil Prices Explode

The hydrogen economy may be in its very early stages, but companies-including major oil firms and governments are already working to develop projects and bring costs down. 

The biggest oil companies in Europe, including BP, Shell, TotalEnergies, Equinor, Eni, and Repsol, all have ongoing hydrogen projects and plan more for the future. 

Germany said in May that it would fund 62 large-scale hydrogen projects with as much as US$10 billion in federal and state funds as it aims to become the world’s leader in hydrogen technologies.

Even countries in the top oil-producing region in the world, the Middle East, are looking at ways to become hydrogen production and export hubs. Oman, the United Arab Emirates (UAE), and Saudi Arabia are betting on hydrogen for leadership in another energy market apart from oil exports. 

In the United States, Secretary of Energy Jennifer Granholm launched in June the U.S. Department of Energy’s first Energy Earthshots Initiative, Hydrogen Shot, which seeks to reduce the cost of clean hydrogen by 80 percent to $1 per kilogram in one decade. 

“Clean hydrogen is a game-changer. It will help decarbonize high-polluting heavy-duty and industrial sectors while delivering good-paying clean energy jobs and realizing a net-zero economy by 2050,” Secretary Granholm said.  

By Tsvetana Paraskova for Oilprice.com

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